The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi
Abstract This study examines the nexus between external shocks and micro-transmission aspects of volatility persistence and market efficiency for the Malawian Foreign exchange market. Garch-type models are employed on monthly data stretching back to June 2011 through to October 2021. Results of the...
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Springer Nature
2024-11-01
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| Series: | Humanities & Social Sciences Communications |
| Online Access: | https://doi.org/10.1057/s41599-024-03957-8 |
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| author | Joseph Paul Chunga Ping YU |
| author_facet | Joseph Paul Chunga Ping YU |
| author_sort | Joseph Paul Chunga |
| collection | DOAJ |
| description | Abstract This study examines the nexus between external shocks and micro-transmission aspects of volatility persistence and market efficiency for the Malawian Foreign exchange market. Garch-type models are employed on monthly data stretching back to June 2011 through to October 2021. Results of the study show the presence of two structural breaks for the volatility series and one structural break for the return series that fall within the rolling window for external shock associated with the Russia-Ukrainian war. The negative nature of the shock leads to a significant additive impact on volatility persistence, asymmetry, and threshold at different levels of significance in the three models of Garch, E-Garch and T-Garch respectively. Relaxing the models confirms the presence of domestic influence. However, the external influence remains significant especially for the negative shock. As such, the leverage and volatility feedback effects of external shocks are corroborated. Augmenting the approach with a FRUH analysis reveals that the foreign exchange market does not follow a random walk as it departs from the 1:1 relationship between the spot and forward rate thus being weak-form inefficient. |
| format | Article |
| id | doaj-art-3bc8af87c2b84bc6a78209f61b8c77e2 |
| institution | DOAJ |
| issn | 2662-9992 |
| language | English |
| publishDate | 2024-11-01 |
| publisher | Springer Nature |
| record_format | Article |
| series | Humanities & Social Sciences Communications |
| spelling | doaj-art-3bc8af87c2b84bc6a78209f61b8c77e22025-08-20T02:50:05ZengSpringer NatureHumanities & Social Sciences Communications2662-99922024-11-0111111410.1057/s41599-024-03957-8The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from MalawiJoseph Paul Chunga0Ping YU1School of Economics, Wuhan University of TechnologySchool of Economics, Wuhan University of TechnologyAbstract This study examines the nexus between external shocks and micro-transmission aspects of volatility persistence and market efficiency for the Malawian Foreign exchange market. Garch-type models are employed on monthly data stretching back to June 2011 through to October 2021. Results of the study show the presence of two structural breaks for the volatility series and one structural break for the return series that fall within the rolling window for external shock associated with the Russia-Ukrainian war. The negative nature of the shock leads to a significant additive impact on volatility persistence, asymmetry, and threshold at different levels of significance in the three models of Garch, E-Garch and T-Garch respectively. Relaxing the models confirms the presence of domestic influence. However, the external influence remains significant especially for the negative shock. As such, the leverage and volatility feedback effects of external shocks are corroborated. Augmenting the approach with a FRUH analysis reveals that the foreign exchange market does not follow a random walk as it departs from the 1:1 relationship between the spot and forward rate thus being weak-form inefficient.https://doi.org/10.1057/s41599-024-03957-8 |
| spellingShingle | Joseph Paul Chunga Ping YU The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi Humanities & Social Sciences Communications |
| title | The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi |
| title_full | The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi |
| title_fullStr | The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi |
| title_full_unstemmed | The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi |
| title_short | The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi |
| title_sort | impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime evidence from malawi |
| url | https://doi.org/10.1057/s41599-024-03957-8 |
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